Evelyn Jacks: Plan now to avoid overpaying annual taxes

Now is the time to do yearend tax planning — to ensure you do not pay more income taxes than necessary.

There are two very good reasons to start your yearend tax planning now:
• If you pay your taxes in quarterly instalments, you need to review income earned in the current tax year so as not to overpay your December remittance.
• By planning ahead, you can reduce taxes payable for 2012 — by giving to charity before yearend, for example, or by freeing up funds to make an RRSP contribution or digging for receipts so you can claim all the write-offs for which you qualify.

For most people, the final quarterly tax instalment of the year is due Dec. 15; only farmers and fishers are required to make an advance payment on taxes owing on Dec. 31. If your income has dropped over the past year, your final instlament may not be as large a payment as expected, or you may make no payment at all. See your tax advisor to prepare an exact estimate.

Next, understand how contributing to your RRSP can reduce your net income and, thus, the amount of taxes you pay. That’s particularly important if you are in a clawback zone for social benefits such as Old Age Security or Canada Child Tax Benefits. It’s smart planning, too, as your lower tax bill could increase your cash flow throughout 2013.

Maximizing deductions such as childcare expenses and moving expenses also help reduce your net income. But remember: you’ll need all the receipts to file an audit-proof tax return. 

When it comes to your non-refundable tax credits, December is a good time to make appointments to buy glasses, contact lenses and hearing aids or to do expensive dental work if, by doing so, your increase the amount that qualifies for the medical expenses claim. But first check with your tax advisor to see how much you need to spend to make a difference on your return. 

Also note that for the first time starting in 2012, the new Family Caregiver Tax Credit will increase various provisions on the tax return including your Spousal Amount. If the health of your family members has changed in the past year, be sure to ask your tax advisor for guidance on claiming new tax credits in 2013. You may be able to reduce your withholding taxes on your January paycheque by completing a TD1 Form to take into account this new information.

It’s Your Money, Your Life. You are required to pay only the correct amount of taxes — no more. Your tax advisor can help you increase your cash flow if you wish to save money on your 2012 tax return, but do make the appointment before yearend.

Evelyn Jacks is the author of 50 books and the president of Knowledge Bureau, a national designated educational institute focused on excellence in financial education for financial advisors and their clients. For information about certificate tax, retirement and investment courses, click here  or call 1-866-953-4769.